Don’t fall in the poverty trap – you might never get out…
Until you earn about $40,000 a year, you’re pretty much stuck in poverty, an economists’ numbers show.
In fact, until you get past $40,000 a year, any raise or higher paying job you get might actually sink you deeper into poverty.
The poverty trap is still very much a reality in the U.S.
A woman called me out of the blue last week and told me her self-sufficiency counselor had suggested she get in touch with me. She had moved from a $25,000 a year job to a $35,000 a year job, and suddenly she couldn’t make ends meet any more. I told her I didn’t know what I could do for her, but agreed to meet with her. She showed me all her pay stubs, etc. She really did come out behind by several hundred dollars a month. She lost free health insurance and instead had to pay $230 a month for her employer-provided health insurance. Her rent associated with her section 8 voucher went up by 30% of the income gain (which is the rule). She lost the ($280 a month) subsidized child care voucher she had for after-school care for her child. She lost around $1600 a year of the EITC. She paid payroll tax on the additional income. Finally, the new job was in Boston, and she lived in a suburb. So now she has $300 a month of additional gas and parking charges. She asked me if she should go back to earning $25,000.
Take a look at this chart by economist Clifford Thies, via Greg Mankiw’s blog. From the green dot, you can see that earned income rises… for a while. Then there’s this screwy wavy line. That’s the mother making a little more, but earning a little less.
$40,000 a year is about $19 an hour. Over 40 percent of Chicagoans don’t earn that much.
There aren’t that many jobs out there that make $19 an hour. Bank Teller? $13.33 an hour. Office clerk? $15.60. Retail salesperson? $11.80. Security guard? $16.14. (statistics via Chicago Rehab network).
Our tax incentives work… initially. Then they only serve to hurt people. They say the poor don’t work hard enough, but that single mother sounds like a pretty hard working person to me. The story goes on to say that she got a weekend job, to try to make ends meet. Except after childcare and gas, it didn’t help at all.
So if working harder means people might actually earn less, how is it that we expect people to work harder?